Harvison Reviews Drastic Changes Affecting Tank Truck Industry

April 1, 2000
Excerpts from a speech by Cliff Harvison, president of the National Tank Truck Carriers, to the Transportation Club of Houston, March 7, 2000.In terms

Excerpts from a speech by Cliff Harvison, president of the National Tank Truck Carriers, to the Transportation Club of Houston, March 7, 2000.

In terms of the transportation industry, most of us in this room have been either part of or witness to a true revolution in our sector of the economy.

In the context of today's commerce, regulation means the interposition of government rules and constraints on an entrepreneur's decision-making process. That's the broad-brush definition of regulation. Conversely, the word deregulation implies and suggests that those government rules and constraints have been removed from that decision-making process. This is not what happened.

What we have seen is "reregulation." Government's heavy and onerous hands have been set to work establishing social priorities instead of economic priorities. But the impact is still the same. You will spend money to meet government dictates, if you are to remain in business.

Here and now, I issue a challenge. If you really believe that the trucking industry has been deregulated, please go out, find, and bring me a truck operator (preferably one who has a pulse and an IQ above that of bread mold) who can buy and operate vehicles free of hardware and appliances mandated by the Environmental Protection Agency, the National Highway Traffic Safety Administration, and the Federal Motor Carrier Safety Administration.

That same operator, of course, will have none of the terminal properties built, graded, paved, and covered in total compliance with applicable federal, state, and local regulations.

And moreover, all employees will have been recruited and retained in complete disregard of the Occupational Safety and Health Administration, the Department of Labor, the Equal Employment Opportunity Commission, and the Department of Transportation.

Do I have any takers on my challenge?

Trucking deregulation is a myth. It never happened. It's a lie foisted upon us by lawyers, law makers, academics, and journalists, all of whom share one common trait none of them ever made a dime or created wealth in the transportation business.

The same is true with the railroads. The Staggers Act did not deregulate the railroads. All Staggers did was make it easier for the railroads to merge, abandon track and service, and further isolate and (apparently) alienate so-called captive shippers.

Despite the lessons of the past, despite the transparent falsity of trucking deregulation and, despite the cruel hoax of the Staggers Bill, many if not most and, here I will use a colloquial phrase "Today's shippers just don't get it." They think that they are dealing with trucking and transportation companies who don't bear the costs of government regulation.

I come here not as a shipper basher. Instead, I come here as a supplicant. I'm begging you to toss away your cost models, traffic lane studies, and destructive bidding gimmicks, and resort to some good, old-fashioned common sense.

Just three weeks ago, I had a conversation with a major bulk shipper who was complaining about the volatility of the tank truck carriers' fuel surcharges. Now, here we were in the middle of a driver shortage, the price of diesel had just topped $2.30 a gallon in New England, and the gentleman concludes our conversation with the following comment:

"Your carriers should be less concerned about fuel, and more concerned with washing costs out of the system."

That mentality is the object of my wrath. Variations on that theme are all too common among today's transportation professionals.

The tank truck industry is a service entity. We are not a safety net or an emergency service to be summoned when alarm bells go off, or a tank car gets stranded at some railroad siding in West Texas. We buy equipment, hire, and train drivers and mechanics, tank cleaners, sales forces, and administrative personnel to meet service requirements on a continuing basis. You do not get quality service by dialing 911.

But the reality of the post "reregulatory" period is that the tank truck industry has reconstructed and retooled our industry exactly as the shipper segment has desired. The past five years have seen an unprecedented growth in the number of loads hauled by the tank truck industry. The economy is growing, we're burning more petroleum products than ever, our foodgrade shipments are up, and our shipments of baseline chemicals and paints are at an all-time high.

It is totally reasonable that in order to meet this increased demand the tank truck industry should be bringing more tank trailers on line. Yet, this has not happened. According to reports of the Truck Trailer Manufacturers Association and the Department of Commerce, new tank trailers coming off the assembly lines have averaged about 5,400 per year for the past eight years.

When you factor in that annually about five percent of existing units are either retired or removed from hazardous materials service, you begin to see how well we have obeyed our customers' mandate to "get rid of overcapacity."

Absent extraordinary circumstances, no longer will you go to a carrier's main terminal at two o'clock on a Wednesday afternoon and see a dozen trailers parked against the fence. Simply stated, our shippers told us to get "lean and mean" and we've done that.

Of course, there's a downside to "lean and mean." By and large, the customer base of a tank truck carrier is a sliver when compared to that of a counterpart in the dry freight arena. Dry freight has virtually the entire manufacturing segment to solicit. So, our customer base is getting smaller.

But, let's face it, if you're a tank carrier, the list of possible clients is pretty well confined to major oil companies, the major chemical companies, and the producers of edible products. Merger and acquisition activity in all of these producer segments is further narrowing that list.

More important than raw numbers, however, is the marketplace reality that the vast majority of our customers are economic powerhouses, and they don't hesitate to use that power to keep the rate levels depressed. We are told that that economic leverage is used to preserve competition.

When economic leverage is used in such a fashion as to prevent competition, economic leverage becomes inherently destructive, and that's what's being done today.

I submit that it is destructive to use the cloak of competition to shroud an inability to buy needed hardware and hire people. Today, the tank truck industry's margins are so slim that we cannot attract, train, and retain drivers. That's just a fact. Today, we are not competing within the nationwide employment pool for qualified individuals to drive trucks.

Automation, robotics, and electronics have done wonderful things for the tank truck industry. We have global positioning, e-mail in the cab, electronic braking, driver monitoring sensors, and overfill protection devices.

However, we have yet to automate the driver out of the cab, and that's our problem. Right now, it's more than likely that (depending on methods on compensation, insurance arrangements, geographic considerations, and experience) the average tank truck driver brings home between $35,000 and $45,000 per year.

Joseph Atkinson Jr, Chief Executive Officer of Pennsylvania's Atkinson Freight Lines Corp, a large and profitable dry freight carrier, made these comments recently.

"In 1999 our typical driver earned $52,195. On top of that we paid for a fringe package that contains your normal mandated items, plus, on average, three weeks vacation, six sick days, eight holidays, a major medical and dental plan and funding that provides for a $3,000 monthly pension. Our top driver earned $77,035. I can't look a driver in the eye and say he has a good gob. Our drivers literally live in the truck for six days a week, and put up with traffic congestion and difficult consignees day in and day out."

That's competition. And with unemployment in the four to five percent range, that will be the playing field for attracting drivers for the relative future. The tank truck carriers' inability at present rate levels to play in Mr Atkinson's salary ballpark is part of the competition I spoke of.

That's one reason why the average age of drivers within the NTTC membership is in excess of 52 years of age. Lifestyle is of equal importance. Let's say that you, your spouse, and your typical 1.3 children decide that life would be comfortable at a gross income of $70,000. Typically, today, the spouse is also a breadwinner. So, for the sake of example, let's say the tank truck driver's spouse is capable of going into the work force and command a salary of between $35,000 and $40,000.

Our "wannabe" driver then finds that he or she can take work in the construction industry, drive a cab, be a shift manager at McDonald's, whatever, and be off the road, home at night, and spend Saturdays at the Little League with his kids, and still bring home his share of the pie.

What would be your choice? Of course, if either the driver or the spouse has a college education or is adept at a particular skill, that choice becomes even easier.

To demonstrate that I'm not dealing in hypotheticals, last November, I ran an admittedly "quick and dirty" survey of my membership, asking one question, to wit: "On any given business day, how many power units are standing idle because you can't find drivers. The answer---over a thousand, industrywide."

Now, that doesn't mean that over 1,000 loads don't move. What it does mean is that on any given day, over 1,000 loads will be late, delayed, rerouted, or they won't move in concert with the plans and needs of our customers.

The driver shortage is real and long-term, and it will get much worse before it gets better. Compounding the situation is that the Department of Transportation will soon make modifications in the hours of service regulations. Is there anyone in this room so naive to think that DOT will allow more driving hours or even that they will maintain parity with today's schedules?

Others suggest that we increase truck sizes and weights for the sake of productivity. Well, that may be fine in some states, but would anyone here care to hazard a guess as to the reaction of Houstonians when they're told that bigger, heavier trucks will be headed for Interstate 610?

No business has ever survived without the acceptance, goodwill, and cooperation of its customers. The measurement of that acceptance, goodwill, and cooperation is generally referred to as "price."

If the tank truck industry is to continue providing its customer base with safe and reliable service, then customer attitudes about price must change, and here are some suggested "attitude adjustments": * Equipment overcapacity is either gone or disappearing rapidly. So if you want assured service, work on building lasting and long-term relationships with carriers.

* Since both major political parties have decided that we will not explore for oil on our domestic lands and shores, the United States industrial base and the individual consumer have become captive to OPEC. Until we decide to escape from this prison, the price for product will remain volatile; and, if we're hauling your product, you will have to pay for that volatility.

* The current process by major shippers of "bidding freight" (that is, leveraging the resources of one undercapitalized carrier against the resources of a similarly undercapitalized carrier) is destructive, and will cause carriers to cut corners that you don't want cut. Remember, in our business, the "deep pockets" always belong to the customer.

* The driver shortage is real. Despite the admonitions of philosophers, psychologists, consultants, and academics who tell you that drivers want acceptance, appreciation, and other warm and fuzzy things, drivers want money. And there are other places to get it.

* Lastly, if you think that you can get a better deal by returning to private trucking, go to it. We will sell you the trucks and the terminals and all of the hoses, valves, fittings, and in-truck computers you'll ever need. Additionally, we will provide you the names, addresses, and phone numbers of individuals who won't drive a truck for $35,000 a year.